FACULTY OF CHEMICAL AND RENEWABLE ENERGY ENGINEERING

(FCEE)
UNIVERSITI TEKNOLOGI MALAYSIA

SKPP3113
EVALUATION & MANAGEMENT OF PETROLEUM
PROJECTS
Name

HUSSAIN BIN HAKIMUDDIN

A13KP0033
WAN MOHD FIKRRY BIN ABDULLAH
A13KP0132
GAJENDRAN A/L RAMASAMY
A13KP0031
HEMAKKESHA A/L ARUMUGAM
A13KP0032

Submission Date

17th May 2016

Section

SN 02

Lecturers Name

ASSOC. PROF.DR. MUHAMMAD BIN MANAN

Marks (%)

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Table of Content
LIST OF FIGURES..3
INTRODUCTION4
BACKGROUND OF PROJECT..5-7
1ST FIELD DEVELOPMENT PROJECT8-11
i.
ii.

Contractors NCF Built Pipeline

Projects NCF Built Pipeline

2ND FIELD DEVELOPMENT PROJECT..11-14

i.
ii.

Contractors NCF Shared Pipeline

Projects NCF Shared Pipeline

FIELD DATA ANALYSIS14

DECISION MAKING15
CONCLUSION..........16
REFERENCES...17

List of figures

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Figure 1 : The map of the field interest with coordinating of 1135060 E, 4 51 36 N

Figure 2 : The graph of Production Rate against Year
Figure 3 :Net cash flow Profile of Contractor for Shared Pipeline
Figure 4 : The graph of Net present value against Discount rate
Figure 5 : Net cash Flow Profile of Project for Shared Pipeline
Figure 6 : The graph of Net present value against Discount rate
Figure 7 : The graph of Production Rate against Year
Figure 8 : Net Cash Flow Profile of Contractor for FPSO
Figure 9 : The graph of Net present value against Discount rate
Figure 10 : Net Cash Flow of Project for FPSO
Figure 11 : The graph of Net present value against Discount rate

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INTRODUCTION
This Evaluation and Management project is the study of economoic evaluation or the
operation of BETA PSC Block . Other than that , the purpose of this evaluation being carried
out is for Field Development. Besides, the objectives of the economic evaluation are to secure
new petroleum acreage by bidding the National Oil Companies and also for sale and
exchange of petroleum assets. Next, its used for unitization of an agreement between
companies, contractors and also the host government.
By doing this project work , we have a better understanding on the economical effects
due to our choices . Besides, twe would be able to select he most optimal option in oil&gas
industry by comparing the options and its economical effects .
The parameters of the projects need to consider and being compared with the all types
of Field Development Projects before making a decision for the most preferable method.
Example of parameters that involved in the economic evaluation projects are the Cash Flow
diagram, Payback period, Breakeven, Net present Value (NPV) and also the Internal Rate of
Return (IRR).

BACKGROUND OF PROJECTS
The field area of the economic evaluation is located at the offshore Terrenganu in
Penisular Malaysia near South Chinese Ocean. The first oil discovery at Terrenganu is
Bertam field developed by Lundin Petroleum. Below are the data provided for the field of
interest for operating process.
Drilling results showed that the prospect contain of certain of expected oil STOIIP of the field
area:

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PROBABILITY
P90
P50
P10

STOIIP (MMSTB)
330
440
570

General Data of the Field

1. Oil price 2016
= USD$45.00/bbl
2. Gas price 2016
= USD$3.5/MMBTU (LNG base price)
3. Oil Price Escalation = 5% per year
4. Gas price escalation = 5% per year
5. Cost Escalation
= 5% per year
6. Exchange rate
= RM4.0 to USD$1.00
7. Oil production
@ Peak rate per well = 4000 STB/d
8. Oil peak rate
= 4% of STOIIP per year (5 years)
9. Oil throughput fee of USD$1/bbl is charged
10. Oil and gas (if any) are exported
11. Solution Gas Oil Ratio 780 SCF/STB
12. Start production in 2022

To find the number of wells during the peak rate of oil production
Q max = 4% x 330 MMSTB x 5 years
= 66 MMSTB year
Total number of wells at peak rate =

66 MMSTB
4000 365 days 5 years

= 9.04
= 9 well

Figure 1 : The map of the field interest with coordinate of 1050412 E, 4 41 24 N

1050412 E, 4 41 24 N

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1050412E, 44124N

For this project of economic evaluation is under 1985 PSC arrangement negligible the
joint venture element. Our group suggested three scenariosfor the production which is
suitable for the given coordinate . . The coordinate given was , 1135060 E, 4 51 36 N, it

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is located offshore of Terrenganu . The given coorcinated is about 183.47 km from Kemaman
Supply Base (KSB) .
We have came up with several ideas and solution for field development project . For
our group, basically we managed to evaluate three different ways of operating planning.
Firstly, the company built up their own pipeline from the field of interest to Kemaman Supply
Base for 183.47 km for length. Apart from that, the second scenarios is 33.47km built up oil
pipeline which is owned by the company and rent about 150km of oil pipeline in . Therefore
the total length of the oil pipeline for second scenarios is about 183.47km. Lastly, we were
planning of renting a Floating Production Storage Offloading (FPSO) which is really
expensive.
This project should be evaluated based on several of economic indicator in order to
assess the feasibility for project expansion or acceleration. The example of economic
indicators are maximum cash sink, breakeven, payback period, economic limit, economic
life, ultimate cash flow, profit investment ratio (PIR), net present value (NPV), and lastly the
internal rate of return (IRR).
In order to identify the most efficient method for the field development project, we
have to evaluate the basic data given and compare the value of Internal Rate of Return of
each idea.

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OPTION #1 FIELD DEVELOPMENT PROJECT

Type : Oil Pipeline
Details : 1) 150 km in length built up own pipeline
2) 33.47km rent from oil pipeline
3) Rental per day per km = $3000
Development
Cost
4 leg Jacket
Topside
Topside & CPP
Pipeline
9 well
Total Cost

RM
480,000,000.00
720,000,000.00
920,000,000.00
60,000,000.00
720,000,000.00
2,900,000,000.00

Contractors NCF Shared Pipeline

The graph of production rate against Year

40,000.00
35,000.00
30,000.00
25,000.00

Production Rate (STB)

20,000.00
15,000.00
10,000.00
5,000.00
0.00

Year

Figure 2: The graph of Production Rate against Year

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CASH FLOW PROFILE

3,000,000,000.00
2,000,000,000.00
1,000,000,000.00
0.00
Net C ash Flow (MYR)
(1,000,000,000.00)
(2,000,000,000.00)
(3,000,000,000.00)
(4,000,000,000.00)
Year
Net Cas h Flow

Cumulative Net Cas h Flow

Figure 3: Net cash flow Profile of Contractor for Shared Pipeline

Discount Rates
5%
10%
20%
30%
40%
50%
60%
70%

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Net Present
Value(NPV)
$498,038,726.86
(RM12,367,569.96)
(RM398,937,286.21)
(RM454,895,323.62)
(RM415,065,478.00)
(RM353,976,620.41)
(RM294,867,578.62)
(RM244,023,101.68)

The graph of Net Present Value against Discount Rate

RM100,000,000.00
RM0.00
0.1
(RM100,000,000.00)

Net Present VAlue (MYR)

0.2

0.3

0.4

0.5

0.6

(RM200,000,000.00)
(RM300,000,000.00)
(RM400,000,000.00)
(RM500,000,000.00)

Discount rate (%)

Figure 4: The graph of Net present value against Discount rate

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

9.83117103%
Internal Rate of Return (IRR)
at NPV=0

Projects NCF Shared Pipeline

CASH FLOW PROFILE

12,000,000,000.00
10,000,000,000.00
8,000,000,000.00
6,000,000,000.00

Net cash Flow (MYR)

4,000,000,000.00
2,000,000,000.00
0.00
(2,000,000,000.00)
(4,000,000,000.00)

Year
NCF after tax

Cumulative NCF after tax

Figure 5: Net cash Flow Profile of Project for Shared Pipeline

Discount
Rates

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Net Present
Value(NPV)
RM8,650,485,096.
1%
97
RM5,273,082,891.
5%
90
10% RM2,850,598,649.

0.7

62
RM756,059,937.2
20%
8
30% RM70,757,424.37
(RM152,606,663.
40%
81)

The graph of Net present Value against Discount rate

RM12,000,000,000.00
RM10,000,000,000.00
RM8,000,000,000.00

Net Pesent Value (MYR)

RM6,000,000,000.00
RM4,000,000,000.00
RM2,000,000,000.00
RM0.00
0.01
(RM2,000,000,000.00)

0.05

0.1

0.2

Discount Rates

Figure 6: The graph of Net present value against Discount rate

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

32.116170%
Internal Rate of Return (IRR)
at NPV=0

OPTION #2 DEVELOPMENT PROJECT

Type : Floating Production Storage Offloading (FPSO)
Details : 1) Rent
2) $ 345,000 per day
Development
Cost
4 leg Jacket
Topside
Topside & CPP
FPSO
9 well
Total Cost

RM
480,000,000.00
720,000,000.00
920,000,000.00
503,700,000.00
720,000,000.00
3,343,700,000.00

Contractors NCF FPSO

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0.3

0.4

The graph of Production rate against year

40,000.00
35,000.00
30,000.00
25,000.00

Production Rate (MYR)

20,000.00
15,000.00
10,000.00
5,000.00
0.00

Year

Figure 7: The graph of Production Rate against Year

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CASH FLOW PROFILE

3,000,000,000.00
2,000,000,000.00
1,000,000,000.00
0.00
(1,000,000,000.00)
(2,000,000,000.00)
(3,000,000,000.00)
(4,000,000,000.00)
Net Cash Flow

Cumulative Net Cash Flow

Figure 8: Net Cash Flow Profile of Contractor for FPSO

Net Present Value
Discount Rates
(NPV)
1%
RM195,037,500.14
5%
(RM17,644,301.11)
10%
(RM252,176,667.63)
20%
(RM469,589,714.99)
30%
(RM483,982,486.41)
40%
(RM428,703,006.54)
50%
(RM359,825,556.13)
60%
(RM296,201,485.68)
70%
(RM242,624,333.72)

The graph of Net Present Value against Discount rate

RM200,000,000.00
RM0.00

Net Present Value (MYR)

0.010.05 0.1 0.2 0.3 0.4 0.5 0.6 0.7

(RM200,000,000.00)
(RM400,000,000.00)
(RM600,000,000.00)

Discount rate (%)

Figure 9: The graph of Net Present Value against Discount Rate

From the graph above, we were obtained the value of Internal Rate of Return which as shown below.
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4.67540503%
Internal Rate of Return (IRR)
At NPV=0

Project NCF FPSO

CASH FLOW PROFILE

8,000,000,000.00
6,000,000,000.00
4,000,000,000.00

Net CAsh Flow(MYR)

2,000,000,000.00
0.00
(2,000,000,000.00)
(4,000,000,000.00)

Year
NCF after tax

Cumulative NCF after tax

Figure 10: Net Cash Flow of Project for FPSO

Discount
Rates
1%
5%
10%
20%
30%
40%

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Net Present
Value(NPV)
RM6,163,226,9
17.76
RM3,789,684,0
46.49
RM2,022,504,4
99.92
RM451,106,109
.04
(RM60,077,878.
40)
(RM213,650,26
6.62)

The graph of Net Present Value against Discount rate

Net Present Value (MYR)

RM7,000,000,000.00
RM6,000,000,000.00
RM5,000,000,000.00
RM4,000,000,000.00
RM3,000,000,000.00
RM2,000,000,000.00
RM1,000,000,000.00
RM0.00
0.01
(RM1,000,000,000.00)

0.05

0.1

0.2

0.3

0.4

Discount Rate

Figure 11: The graph of Net present value against Discount rate
From the graph above, we were obtained the value of Internal Rate of Return which as shown below.

28.036041%
Internal Rate of Return (IRR)
At NPV=0

FIELD DEVELOPMENT ANALYSIS

The basic measure in the analysis is to fabricate a Net Cash Flow Diagram for the
lifetime of the project. The aim of fabricating the net cash flow is so that the saving and all
the costs could be put into account. The Simple Payback Period is the amount of time to
recover the capital cost of the initial investment. This is done by utilizing the net cash flow
per year for the initial few years.
Payback period = (capital cost)/(cash flow/year)
The Net Present Value (NPV) is detemined by finding the value of each cash flow
when it is brought back to the present by the use of the interest or discount rate, followed by
subtracting the capital cost. the assumption that the cash flow comes at the end of the interest
period is believed to have accurate calculation
The meaning of Internal Rate of Return (IRR) is the interest rate at which the NPV is
zero. IPR calculation does not have a closed form solution. It is solved iteratively by
successively testing interest rate values and checking for a NPV of zero. Both NPV and IRR
are known as the time functions from the outlood of how further into the future the analyst
desires to consider these values for purposes of comparison of present investment decisions.
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According to the Field development projects for all 3 scenarios, the value of IRR of
each and every scenarios are not same and usually the economic results of a project may not
be straightforwardly measurable, but may be a function of a key parameter of the project
results, whose direct measurement is beyond the scope of the project. Based on our field
development project at offshore of Sarawak, we were acquired the result by carrying out the
comparision of the value of IRR for every single project planning for both Project and
Contractor..
Result :
Field Development

Contractor

Project/Company

Shared Pipeline

10.54417293%

34.296727%

Rent FPSO

3.69840102%

27.656322%

Decision Making
For the time for selecting among mutually exclusive projects or features of the same
project, NPV, IRR, and payback period, they should be evaluated for each option in order to
arrive at the best economic alternative. If the mutually exclusive options have different life
spans, NPV is typically the best metric for comparison because all savings are brought to the
present. From the outcome, the Option #1 Field Devlopment Project is the most profitable
way to operate the field of interest. That shows that the company is recommended to use and
construct their own pipeline the offshore of Terengganu. Based on the assessment , the Option
#1 development Project gives the highest percentages of Internal rate of Return(IRR) among
the 3 projects planned.

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CONCLUSION
For the conclusion of our assessment of the Field Development Project planning for the oil
operation of transportation methods to the onshore, we have decided and agreed with the first project
planning . Our first project suggested about the constructing their very own oil pipeline that connects
from the offshore platform operation to the terminal which moniterd by the company properties. As
for the second project, the oil pipeline per day has the cost of the rental around $3,000 which results
in moderate percentage of profit income. For the third project, the FPSO rental for operation is about
$345,000 per day for the duration of 15 years and it will cost a lot and is proved that it is has the
minimal percentage of profit income. The location of the platform is believed located in the offshore
of Terengganu with the given latitudes and longitudes. Terminal nearby is located at Kemaman which
is known as Kemaman Supply Base. The distance between the platform and the terminal is about
183.47 km.
Then, the economic assesment parameters involved in this projects are functioning as the
control variable for decision making for choosing the right and the most preferable methods that will
generate a very high income for both of the parties who are the contractor and company. The most
vital parameters are the Net cash flow diagram, Breakeven, Payback period, Net Present Value (NPV)
and also the Internal Rate of Return which are known as the time function for the assumption of the
future profitable income and futhermore for investment planning for the project operation in future.

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REFERENCES
1. Concepts in Economic Evaluation. (n.d.). Retrieved May 13, 2016, from
http://ocw.jhsph.edu/index.cfm/go/viewCourse/course/ConceptsEconomicEvaluation/
coursePage/index/
2. How to Calculate Your Internal Rate of Return on Investments. (n.d.). Retrieved May
13, 2016, from
3. http://moneyover55.about.com/od/howtoinvest/g/internalrateofreturn.htm
4. How to Calculate Your Internal Rate of Return on Investments. (n.d.). Retrieved May
13, 2016, from
http://moneyover55.about.com/od/howtoinvest/g/internalrateofreturn.htm
5. Oil and gas property valuation and economics. (2010). Richardson, TX: Society of
Petroleum Engineers.

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